April 18. 2024. 12:17

The Daily

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Russia uses illicit capital to undermine Balkan democracies

Illicit capital, the Kremlin’s most potent sharp power tool, circulates in and out of the Western Balkans on a staggering scale, enabled by governance weakness, endemic corruption, organised crime, and a rampant shadow economy, write Vanya Petrova and Ruslan Stefanov.

Ukraine’s heroic resistance to Russia’s aggressive war has been the latest jolt to the European Union’s geopolitical conscience. A year after the full-scale invasion the European Commission has, rightly, quickly extended the prospect of membership to Ukraine, Moldova and Georgia.

After all, the three countries are indeed the first line of defence to the Kremlin’s real and openly stated ultimate goal – the destruction of the EU. Yet, many doubt the resolve of all member states to act upon this promise would last or deliver.

And the real stress test would be whether the EU would find a way to take the next step of enlargement in the Western Balkans by 2029.

EU membership has long captivated the imagination of the elites in the Western Balkans. However, for many of those in the region, the idea of a bright European future often seems like an inconceivable fable.

Although the EU-Western Balkans summit last December signalled new hope, the decades-long deadlock remains unbroken, leading to frustration and stagnation. This creates a vacuum that foreign malign forces, most notably Russia, have been cunningly exploiting.

With 51% of Serbians willing to vote against EU membership in a referendum, and 40% still fond of Vladimir Putin, despite his atrocities in Ukraine, the region’s simmering ethnic divisions, state and media capture, and the legacy of Russian cognitive bias make it a prime target for Moscow’s ongoing hybrid war against the EU and the democratic West.

Russia has established a pattern of malign economic impact in Europe through cultivating an opaque network of patronage across the region to influence and direct decision-making in key markets and institutions.

Illicit capital, the Kremlin’s most potent sharp power tool, circulates in and out of the WBs on a staggering scale, enabled by governance weakness, endemic corruption, organized crime, and a rampant shadow economy.

The size of illicit financial flows (IFFs) is estimated at $1-1.5 trillion a year on a global level, while IFFs in the Balkans stand at around 6% of the region’s GDP. This is twice larger than the corresponding average for the world.

This undermines the rule of law, erodes the functioning of criminal justice systems, and jeopardises the business environment. Illicit flows drain public resources, reduce the scope and quality of public services, and thus undermine confidence in state institutions. They also create powerful networks of influence, serving local or external malign interests.

As a transnational problem, curbing the tide of IFFs requires coherence within and between national and international normative frameworks, and coordinated action within the scope of EU enlargement and the Berlin Process.

A new EU approach to economic security, including the accelerated rollout of the European Anti-Money Laundering Authority, and improving sanctions enforcement, investment screening, and asset forfeiture systems, is necessary.

The sooner such common tools for stemming IFFs are able to cover through their higher capacity the Balkans, the EU and the not-yet-EU, the better. This applies to other such law enforcement agencies, such as the European Public Prosecutor’s Office, Europol. Frontex, etc.

While not all funds that run through IFFs originate from predicate crimes, capital generated legally, quasi-legally, or informally may be transferred through illegitimate channels and held in offshore jurisdictions.

Thus, authorities in the Balkans must allow money laundering to be investigated as a separate crime, and beneficial ownership transparency should be enforced to prevent, detect, prosecute, and sanction financial crimes.

Enforcement of transparency requirements for beneficial ownership is vital, as is the stricter security vetting of investments by third parties in SEE and European companies or operations.

More attention should be given to the crypto sphere, which comprises prominent new channels to move money illicitly in and out of the region, especially due to the lower-than-average levels of compliance with international standards on risks from virtual assets.

A lot has been done and can further be done on a policy, technical and administrative level to shore off the Balkans from foreign malign influence and deprive Russia of more opportunities to weaken democratic Europe.

Yet, like in the previous enlargements in the region, it all has to start with a political vision and resolve from the leaders of the free world, to lay out a clear timeline for the next batch of accession.

Europe stands to benefit geopolitically from completing its enlargement in the Balkans, while the peoples of the region will gain freedom, peace and prosperity, provided both sides are not poisoned by the white-noise-disinformation blanket.